Stanford Victim Penny-a-Dollar Payment Plan Goes to Judge

R. Allen Stanford’s investors may
recoup some of their losses more than four years after the
Stanford Group Co. founder was sued by the U.S. Securities and
Exchange Commission and put out of business.

Ralph Janvey, the receiver appointed by a federal judge in
2009 to marshal and liquidate Stanford’s personal and business
assets, today asked permission to make a $55 million interim
distribution to about 17,000 claimants, or about 1 cent for each
of the $5.1 billion lost in the fraud scheme.

“We will follow it up in a subsequent distribution as the
money comes in,” Janvey’s attorney, Kevin Sadler of Baker Botts
LLP, told U.S. District Judge David Godbey today in Dallas.

The proposed payout would trail the more than $5.4 billion
paid to victims of Bernard L. Madoff, who was arrested in
December 2008; about $4.9 billion paid clients of the MF Global
Inc. brokerage after its parent MF Global Holdings Ltd. failed
in October 2011; and the $123 million interim distribution for
victims of Peregrine Financial Group Inc. founder Russell Wasendorf, who prosecutors last year said stole $215 million.

“No distribution plan can satisfy every claimant,”
Janvey’s lawyers said in a Feb. 12 court filing. “But the
receiver’s interim plan, which drew only three objections from
thousands of claimants, comes remarkably close.”

Cross-Border Protocol

Godbey didn’t rule today on Janvey’s bid for payment plan
approval. The judge granted a request to approve the Cross-
Border Protocol, a cooperation agreement between the Dallas
court-appointed receivership and U.S. authorities on one side,
and Antiguan court-appointed liquidators of Stanford assets
outside the U.S. on the other. That approval could boost
investors’ final recovery.

“The court finds the motion to be well-taken,” Godbey
said in a two-page order. He heard more than two hours of
argument this morning.

A federal jury in Houston last year found Stanford, 63,
guilty of lying to investors about the nature and oversight of
certificates of deposit issued by his Antigua-based bank. The
jurors decided he must forfeit $330 million in accounts seized
by the U.S. government.

Sentenced to 110 years in federal prison, Stanford has
appealed the verdict.

Godbey today asked Sadler whether it was proper to
distribute Stanford’s money before entering a final order in the
SEC case against the financier and his businesses.

No Precedent

No legal precedent requires Godbey to first issue such a
ruling, Janvey’s lawyer replied. He also told the judge that in
a prior decision he said “not a nickel” of the money recovered
by the receiver from Stanford entities was not taken by fraud.

One objection to the payout plan came from the law firm
Curtis, Mallet-Prevost, Colt & Mosle LLP. A lawyer for the firm,
Myles Bartley, told the judge today that it’s owed $1.4 million
for work done for Stanford entities and isn’t included in the
first group of distributions.

Sadler said there would be enough funds to resolve those
claims even if the judge approved the proposed payment plan.

In an e-mailed statement, Sadler called the judge’s ruling
today “a significant milestone” in the receivership’s effort
to get money to Stanford fraud victims.

Godbey’s order requires the Janvey receivership and the
Antiguan liquidators to “perform in accordance with their
rights and obligations as outlined in the settlement
agreement.”

Long Dispute

Lawyers for both factions battled for months for control of
$300 million of Stanford assets outside the U.S.

“So long as it continues, millions of dollars in assets
that could otherwise be distributed to victims of the Stanford
Ponzi scheme will remain tied up in the courts,” Sadler told
Godbey in a filing last month.

The liquidators, Grant Thornton International Ltd.
accountants Hugh Dickson and Marcus Wide, joined in the approval
request through a separate filing.

For dropping their dispute with Janvey and the U.S. Justice
Department, the Antiguan liquidators will receive fees of
$36 million from Stanford’s frozen funds in the U.K., according
to a statement jointly released by both receivers on March 12.
The Antiguan liquidators already have received $20 million from
the U.K. accounts.

About $23 million in Canadian funds and $132.5 million in
Swiss funds will be transferred to the Justice Department and
Janvey for distribution to investors through a system the U.S.
receiver is establishing, according to the joint statement.

‘Ransom’ Payment

Angie Shaw, a founder of the Stanford Victims Coalition,
has denounced the agreement as “ransom” that rewards the
Antiguan liquidators at the investors’ expense.

“There is no Plan B,” Sadler told the judge.

Edward H. Davis Jr., an attorney for the liquidators, told
Godbey today that an Antiguan court approved the agreement this
week.

He said the agreement funds a “war chest” for the
liquidators to further pursue lawsuits.

“The Joint Liquidators are pleased to have obtained the
approval of the settlement from the High Court in Antigua this
past Monday,” Davis said today in an e-mailed statement.

Attorneys representing law firms already defending suits
filed by Janvey in the U.S. objected to the accord, arguing that
it would result in more litigation offshore.

“There is obviously a jurisdictional issue,” Godbey said.
“There is no getting around it.”

Fees Paid

Janvey’s professionals had been paid $63.3 million in fees
and expenses as of Feb. 7, according to his most recent status
report. That represents about a quarter of the $230.2 million
Janvey has recovered for the estate. He has paid out
$53.3 million more in costs to wind up Stanford’s business
interests.

Shaw couldn’t immediately be reached for comment on
Godbey’s ruling this afternoon. Peter Morgenstern, an attorney
who serves on the official Stanford Investors Committee, also
didn’t immediately reply to voice-mail and e-mail requests for
comment.

An additional $4.1 million in Stanford-related assets have
been identified in an account held by Pershing LLC, according to
a court filing by Sadler yesterday seeking an order for the
turnover of those funds.

The SEC case is Securities and Exchange Commission v.
Stanford International Bank, 09-cv-00298, U.S. District Court,
Northern District of Texas (Dallas). The criminal case is U.S.
v. Stanford, 09-cr-00342, U.S. District Court, Southern District
of Texas (Houston).

To contact the reporters on this story:
Tom Korosec in the Dallas federal courthouse
at tkorosec@texaswordworks.com;
Andrew Harris in the Chicago federal courthouse
at aharris16@bloomberg.net;
Laurel Brubaker Calkins in Houston at
laurel@calkins.us.com